[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 2004 Introduced in Senate (IS)]







107th CONGRESS
  2d Session
                                S. 2004

    To improve quality and transparency in financial reporting and 
independent audits and accounting services, to designate an Independent 
 Public Accounting Board, to enhance the standard setting process for 
  accounting practices, to improve Securities and Exchange Commission 
            resources and oversight, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 8, 2002

Mr. Dodd (for himself, Mr. Corzine, Ms. Stabenow, Mr. Johnson, and Mrs. 
Boxer) introduced the following bill; which was read twice and referred 
        to the Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
    To improve quality and transparency in financial reporting and 
independent audits and accounting services, to designate an Independent 
 Public Accounting Board, to enhance the standard setting process for 
  accounting practices, to improve Securities and Exchange Commission 
            resources and oversight, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Investor 
Confidence in Public Accounting Act of 2002''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Purposes.
Sec. 3. Definitions.
              TITLE I--INDEPENDENT PUBLIC ACCOUNTING BOARD

Sec. 101. Designation of Independent Public Accounting Board.
Sec. 102. Administrative rules of the Board.
Sec. 103. Duties of the Board.
Sec. 104. Securities and Exchange Commission oversight of the Board.
                TITLE II--ACCOUNTING AND AUDIT STANDARDS

Sec. 201. Auditor independence.
Sec. 202. Registration of public accounting firms.
Sec. 203. Investigations and disciplinary proceedings.
Sec. 204. Accounting standards.
Sec. 205. Misrepresentations to auditors.
Sec. 206. Commission rules and enforcement.
Sec. 207. Enhanced Commission oversight.
                  TITLE III--OTHER INVESTOR SAFEGUARDS

Sec. 301. Improved financial disclosures.
Sec. 302. Commission recommendations on treatment of stock options.
Sec. 303. Commission recommendations on treatment of special purpose 
                            entities.
Sec. 304. Review of corporate governance practices.
Sec. 305. Study of mandatory rotation of registered independent public 
                            accounting firms.

SEC. 2. PURPOSES.

    The purposes of this Act are--
            (1) to designate an independent regulatory organization, 
        subject to Commission oversight, with adequate authority and 
        resources--
                    (A) to register public accounting firms that 
                prepare or issue audit reports with respect to 
                financial statements, reports, or other documents 
                required to be filed with the Commission under the 
                securities laws;
                    (B) to promulgate and enforce compliance with 
                quality control and auditing standards designed to 
                improve the quality of audits conducted by such firms;
                    (C) to administer a continuing program of review of 
                the accounting and auditing practices of registered 
                independent public accounting firms; and
                    (D) to investigate and discipline appropriately 
                such firms, and persons associated with such firms, who 
                violate this Act, the securities laws, the rules and 
                regulations thereunder, the rules of the Board, or 
                professional standards;
            (2) to establish an independent funding source for any 
        accounting standard setting body that is recognized by and 
        subject to oversight by the Commission, in accordance with this 
        Act;
            (3) to ensure greater independence of public audits; and
            (4) to increase funding and staff resources to improve the 
        oversight responsibilities of the Commission in the area of 
        accounting.

SEC. 3. DEFINITIONS.

    In this Act, the following definitions shall apply:
            (1) Appropriate state regulatory authority.--With respect 
        to a registered independent public accounting firm or 
        associated person thereof, the term ``appropriate State 
        regulatory authority'' means the State agency or other 
        authority responsible for the licensure or other regulation of 
        the practice of accounting in the State having jurisdiction 
        over the firm or associated person.
            (2) Audit committee.--The term ``audit committee'' means--
                    (A) a committee (or equivalent body) established by 
                the board of directors of an issuer for the purpose of 
                overseeing the accounting and financial reporting 
                processes of the issuer and audits of the financial 
                statements of the issuer; and
                    (B) if no such committee exists with respect to an 
                issuer, the entire board of directors of the issuer.
            (3) Audit report.--The term ``audit report'' means a 
        document or other record--
                    (A) prepared in connection with auditing services 
                performed for purposes of compliance by an issuer with 
                the requirements of the securities laws; and
                    (B) in which a registered independent public 
                accounting firm--
                            (i) sets forth the opinion of that firm 
                        regarding a financial statement, report, or 
                        other document; or
                            (ii) asserts that no such opinion can be 
                        expressed.
            (4) Board.--The term ``Board'' means the entity designated 
        as the Independent Public Accounting Board pursuant to section 
        101.
            (5) Commission.--The term ``Commission'' means the 
        Securities and Exchange Commission.
            (6) GAAP.--The term ``generally accepted accounting 
        principles'' means any accounting standards and principles--
                    (A) recognized by the Commission as being 
                established by a standard setting body in accordance 
                with section 204; and
                    (B) established by rule, regulation, or order of 
                the Commission.
            (7) Issuer.--The term ``issuer'' means an issuer (as 
        defined in section 3 of the Securities Exchange Act of 1934 (15 
        U.S.C. 78c), the securities of which are registered under 
        section 12 of the Securities and Exchange Act of 1934 (15 
        U.S.C. 78l).
            (8) Non-audit services.--The term ``non-audit services'' 
        means any professional services provided to an issuer by a 
        registered independent public accounting firm, other than those 
        provided to an issuer in connection with the preparation or 
        issuance of an audit report or a review of the financial 
        statements of an issuer in accordance with professional 
        standards.
            (9) Person associated with a public accounting firm.--The 
        terms ``person associated with a public accounting firm'' and 
        ``associated person of a public accounting firm'' mean any 
        individual proprietor, partner, shareholder, principal, or 
        professional employee of that firm, or any other natural person 
        or other entity associated with that firm, that--
                    (A) shares in the profits of that firm; or
                    (B) engages in any conduct or practice by that firm 
                in connection with the preparation or issuance of any 
                audit report.
            (10) Professional standards.--The term ``professional 
        standards'' means generally accepted accounting principles 
        established by a standard setting body described in section 
        204(a), generally accepted auditing standards, generally 
        accepted standards for attestation engagements, generally 
        accepted quality control policies and procedures, and any other 
        standards that the Board or the Commission determines, by 
        rule--
                    (A) relate to the preparation or issuance of 
                financial statements or audit reports, or to auditor 
                ethics and independence; and
                    (B) are promulgated as rules of the Commission, the 
                Board, or by a standard setting body generally 
                recognized or endorsed by the Board, subject to the 
                approval of the Commission.
            (11) Public accounting firm.--The term ``public accounting 
        firm'' means--
                    (A) a sole proprietorship, incorporated 
                association, partnership, corporation, limited 
                liability company, limited liability partnership, or 
                other legal entity that is engaged in the practice of 
                public accounting or preparing or issuing audit 
                reports; and
                    (B) to the extent so designated by the rules of the 
                Board, any associated person of an entity described in 
                subparagraph (A).
            (12) Registered independent public accounting firm.--The 
        term ``registered independent public accounting firm'' means a 
        firm registered with the Board in accordance with this Act.
            (13) Rules of the board.--The term ``rules of the Board'' 
        means the bylaws, rules, stated policies, standards, practices, 
        interpretations, and other instruments of the Board that the 
        Commission, by rule, may determine to be necessary or 
        appropriate in the public interest or for the protection of 
        investors to be deemed to be rules of the Board.
            (14) Securities.--The term ``securities'' has the same 
        meaning as in section 3(a) of the Securities Exchange Act of 
        1934 (15 U.S.C. 78c(a)).
            (15) Securities laws.--The term ``securities laws'' has the 
        same meaning as in section 3(a) of the Securities Exchange Act 
        of 1934 (15 U.S.C. 78c(a)).
            (16) Self-regulatory organization.--The term ``self-
        regulatory organization'' has the same meaning as in section 
        3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)).
            (17) State.--The term ``State'' means any State of the 
        United States, the District of Columbia, Puerto Rico, the 
        Virgin Islands, or any other territory or possession of the 
        United States.

              TITLE I--INDEPENDENT PUBLIC ACCOUNTING BOARD

SEC. 101. DESIGNATION OF INDEPENDENT PUBLIC ACCOUNTING BOARD.

    (a) Designation of the Board.--Not later than 180 days after the 
date of enactment of this Act, the Commission shall designate an entity 
that meets the requirements of this Act and the rules of the Commission 
issued under this Act as the Independent Public Accounting Board, which 
shall be a independent regulatory entity, subject to the oversight of 
the Commission, as provided in this Act and applicable law.
    (b) Private Status of the Board.--The Board, as designated under 
this section, shall not, for any purpose, be an agency or 
instrumentality of the Federal Government, and no officer, employee, 
member of the Board, or other person associated with the Board shall 
be, for any purpose, an officer or employee of the Federal Government.
    (c) Designation Procedures.--Application by any entity or 
organization for designation under subsection (a) shall be in such form 
and subject to such procedures as the Commission may require, as 
necessary or appropriate in the public interest or for the protection 
of investors.

SEC. 102. ADMINISTRATIVE RULES OF THE BOARD.

    (a) Board Membership.--
            (1) Appointments.--The Board shall be comprised of 5 
        members, except during a reasonable time period to fill any 
        vacancies, appointed from among prominent individuals of 
        integrity and reputation who have a demonstrated commitment to 
        the interests of investors and the public.
            (2) Limitation.--Not more than 2 members of the Board may 
        be, on or before the date of appointment, or at any time during 
        service on the Board, certified public accountants pursuant to 
        the laws of any State.
            (3) Exclusions.--No member of the Board may--
                    (A) concurrent with service on the Board, be 
                engaged in the public practice of accounting;
                    (B) during the 3-year period preceding the date of 
                appointment to the Board, be an associated person of a 
                public accounting firm; or
                    (C) share in any of the profits of, or receive 
                payments from, a public accounting firm.
            (4) Independent service.--Each member of the Board shall 
        serve on a full-time basis, and may not, concurrent with 
        service on the Board, be employed by any other entity, except 
        as authorized by the Commission.
            (5) Term of service.--
                    (A) In general.--Each term of service of a member 
                of the Board shall be for 5 years, and until a 
                successor is appointed, except that--
                            (i) the terms of office of the initial 
                        Board members (other than the Chairperson) 
                        shall expire in annual increments, as 
                        determined by the Commission at the time of 
                        designation of the Board under section 4, 
                        resulting in--
                                    (I) 1 term expiring 1 year after 
                                the initial date of appointment;
                                    (II) 1 term expiring 2 years after 
                                the initial date of appointment;
                                    (III) 1 term expiring 3 years after 
                                the initial date of appointment; and
                                    (IV) 1 term expiring 4 years after 
                                the initial date of appointment; and
                            (ii) any Board member appointed to fill a 
                        vacancy occurring before the expiration of the 
                        term for which the predecessor was appointed 
                        shall be appointed only for the remainder of 
                        that term.
                    (B) Term limitation.--No person may serve as a 
                member of the Board for more than 2 terms.
            (6) Appointment committee.--A 4-person appointment 
        committee, composed of the Chairperson of the Board (after 
        selection in accordance with paragraph (9)), the Chairman of 
        the Board of Governors of the Federal Reserve System (or the 
        designee of the Chairman), the Secretary of the Treasury (or 
        the designee of the Secretary), and the Chairman of the 
        Commission (or the designee of the Chairman), shall appoint new 
        members to the Board for each vacancy arising after the initial 
        designation of the Board.
            (7) Removal from office.--A member of the Board may be 
        removed from office for cause before the expiration of the term 
        of that member--
                    (A) by a majority vote of the other members of the 
                Board, subject to the rules of the Board and the 
                approval of the Commission; or
                    (B) by the Commission under section 104(f)(3).
            (8) Vacancies.--A vacancy on the Board shall not affect its 
        powers, but shall be filled in the same manner as provided for 
        appointments under this section.
            (9) Chairperson of the board.--The Chairperson of the 
        Board--
                    (A) shall be selected by the Chairman of the Board 
                of Governors of the Federal Reserve System (or the 
                designee of the Chairman), the Secretary of the 
                Treasury (or the designee of the Secretary), and the 
                Chairman of the Commission (or the designee of the 
                Chairman), from among the members of the Board who were 
                not, on or before the date of appointment to the Board, 
                or at any time during service on the Board, certified 
                public accountants; and
                    (B) shall serve in such capacity for not longer 
                than a 5-year term.
    (b) Rules of the Board.--The rules of the Board shall, subject to 
the approval of the Commission--
            (1) provide for the operation and administration of the 
        Board, including the appointment of members and the Chairperson 
        of the Board, as required by subsection (a);
            (2) provide for the appointment and compensation of such 
        accountants, attorneys, employees, and consultants as may be 
        necessary or appropriate to carry out the functions of the 
        Board in accordance with this Act;
            (3) establish procedures for the registration of public 
        accounting firms in accordance with this Act;
            (4) establish procedures for the Board to enter into 
        contracts, incur expenses, and take such other actions as may 
        be necessary or appropriate for the Board to perform its duties 
        under this Act;
            (5) establish the compensation of members of the Board at a 
        level comparable to similar professional positions in the 
        private sector, subject to annual review and approval by the 
        Commission; and
            (6) provide as otherwise required by this Act.
    (c) Annual Report.--
            (1) Submission to the commission.--The Board shall submit 
        an annual report and proposed budget to the Commission for 
        review and approval, at such times and in such form as the 
        Commission may reasonably require.
            (2) Contents.--Each report required by paragraph (1) shall 
        include a detailed description of the activities of the Board, 
        its audited financial statements, and such other matters as the 
        Board, with the concurrence of the Commission, considers 
        appropriate.
            (3) Transmittal to congress.--The Commission shall transmit 
        each report received under this subsection to Congress.

SEC. 103. DUTIES OF THE BOARD.

    (a) Establishment of Quality Control and Auditing Standards.--The 
rules of the Board shall establish, and provide for the enforcement of, 
such standards of auditor quality control and auditing standards to be 
used by each registered independent public accounting firm in the 
preparation and issuance of any audit report, as required by this Act 
and the rules of the Commission, and as may be necessary or appropriate 
in the public interest or for the protection of investors.
    (b) Inspections.--
            (1) In general.--The rules of the Board shall require the 
        Board to conduct a continuing program of inspections of each 
        registered independent public accounting firm, to assess 
        compliance by that firm, and by associated persons of that 
        firm, with this Act, the rules of the Board and the Commission, 
        and professional standards.
            (2) Inspection frequency.--Inspections required by this 
        subsection shall be conducted--
                    (A) annually with respect to each registered 
                independent public accounting firm that regularly 
                provides audit reports for more than 100 issuers; and
                    (B) not less frequently than once every 2 years 
                with respect to each registered independent public 
                accounting firm that regularly provides audit reports 
                for not more than 100 issuers.
            (3) Procedure.--The Board shall, with respect to each 
        inspection required by this subsection--
                    (A) identify any act or practice, or omission to 
                act, by the registered independent public accounting 
                firm, or by any associated person thereof, that the 
                Board determines may be in violation of this Act, the 
                rules of the Board or the Commission, or professional 
                standards;
                    (B) report any such act, practice, or omission to 
                the Commission, the Attorney General of the United 
                States, and the appropriate State regulatory authority 
                for appropriate referral and investigation; and
                    (C) take any disciplinary action in accordance with 
                this Act and the rules of the Board, as the Board 
                determines appropriate.
            (4) Conduct of inspections.--In conducting inspections 
        under this subsection, the Board shall--
                    (A) review selected audit and review engagements of 
                the registered independent public accounting firm, 
                performed at various offices and by various associated 
                persons of the firm;
                    (B) evaluate the sufficiency of the quality control 
                system in place at the registered independent public 
                accounting firm;
                    (C) determine whether the policies and procedures 
                of the registered independent public accounting firm 
                have been adequately documented and communicated to its 
                employees and other associated persons of the firm;
                    (D) assess whether the level of compliance with the 
                policies and procedures of the registered independent 
                public accounting firm is sufficient to reasonably 
                assure conformity with professional standards; and
                    (E) determine compliance by the registered 
                independent public accounting firm with professional 
                accounting, auditing, independence, and ethics 
                standards.
            (5) Record retention.--To facilitate inspections required 
        under this section, the rules of the Board shall address the 
        retention of records by registered independent public 
        accounting firms, including--
                    (A) which records are to be created and retained;
                    (B) the required retention period for each record 
                identified under subparagraph (A); and
                    (C) the physical location where such records shall 
                be stored.
            (6) Report.--The Board shall prepare a written report of 
        its findings for each inspection under this subsection, which 
        report shall be--
                    (A) accompanied by any letter or comments by the 
                Board or the inspector, and any letter of response from 
                the registered independent public accounting firm under 
                review;
                    (B) transmitted to the Commission;
                    (C) transmitted to the appropriate State regulatory 
                authority; and
                    (D) made available to the public.
    (c) Penalties.--The rules of the Board shall--
            (1) provide for disciplinary actions for registered 
        independent public accounting firms and associated persons 
        thereof, in accordance with rules required by section 203, for 
        violations of this Act, the rules of the Board or the 
        Commission, or professional standards; and
            (2) establish procedures for notification of any such 
        disciplinary action to the Commission, the Attorney General of 
        the United States, and the appropriate State regulatory 
        authority for appropriate referral and action.
    (d) Other Duties.--The Board shall perform such other duties or 
functions as the Commission determines are necessary or appropriate in 
the public interest or for the protection of investors, and to carry 
out the purposes of this Act.

SEC. 104. SECURITIES AND EXCHANGE COMMISSION OVERSIGHT OF THE BOARD.

    (a) General Oversight Responsibility.--The Commission shall have 
oversight and enforcement authority over the Board, as provided in this 
Act.
    (b) Rules of the Board.--
            (1) Definition.--In this section, the term ``proposed 
        rule'' means any proposed rule of the Board, and any change to, 
        modification of, addition to, or deletion from any rule of the 
        Board.
            (2) Prior approval required.--No rule of the Board shall 
        become effective without approval of the Commission in 
        accordance with the requirements of this section, except as 
        specifically authorized in this section.
            (3) Filing with the commission.--The Board shall file with 
        the Commission, in accordance with such rules as the Commission 
        may prescribe, and before the effective date of any proposed 
        rule, copies of the proposed rule, accompanied by a concise 
        general statement of the basis and purpose of the proposed 
        rule.
            (4) Publication of notice.--The Commission shall publish a 
        public notice of each proposed rule, together with the terms 
        and substance of the proposed rule or a description of the 
        subjects and issues involved, in the Federal Register--
                    (A) not later than 30 days after the date of 
                receipt of a filing of the proposed rule under 
                paragraph (3); or
                    (B) not later than 60 days after the date of such 
                receipt, if the Commission finds such longer period 
                appropriate and publishes its reasons therefore, as to 
                which the Board consents.
            (5) Opportunity for comment.--The Commission shall provide 
        to interested persons an opportunity to submit written data, 
        views, and arguments concerning any proposed rule of the Board.
            (6) Commission consideration.--No proposed rule may take 
        effect unless approved by the Commission, or otherwise 
        permitted in accordance with the provisions of this section.
            (7) Timing.--
                    (A) Initial commission decision.--Not later than 30 
                days after the date of publication of notice of a 
                proposed rule in accordance with paragraph (4), the 
                Commission shall--
                            (i) by order, approve the proposed rule; or
                            (ii) institute proceedings under paragraph 
                        (9) to determine whether the proposed rule 
                        should be disapproved.
                    (B) Authority to extend period.--The 30-day period 
                referred to in subparagraph (A) may be extended by the 
                Commission to not more than 90 days after the date of 
                publication of notice under paragraph (4), upon consent 
                of the Board or upon a finding of the Commission that 
                such longer period is necessary or appropriate, and 
                publication of its reasons for that finding.
            (8) Criteria for commission determination.--The Commission 
        shall--
                    (A) approve a proposed rule, if the Commission 
                finds that the proposed rule is consistent with the 
                requirements of this Act and the securities laws, or is 
                necessary or appropriate in the public interest or for 
                the protection of investors; and
                    (B) disapprove a proposed rule if it does not make 
                a finding described in subparagraph (A), in accordance 
                with paragraph (9).
            (9) Disapproval procedures.--
                    (A) Notice and hearing.--If the Commission 
                institutes proceedings under paragraph (7)(A)(ii), the 
                Commission shall--
                            (i) notify the Board and other interested 
                        parties of the grounds for disapproval of the 
                        proposed rule;
                            (ii) provide to the Board and other 
                        interested parties an opportunity for hearing; 
                        and
                            (iii) not later than 180 days after the 
                        date of publication of notice under paragraph 
                        (4), conclude the proceedings and, by order 
                        published in the Federal Register, approve or 
                        disapprove the proposed rule, except that the 
                        Commission may extend such time period for up 
                        to 60 days if it finds good cause for such 
                        extension and publishes its reasons for that 
                        finding, or for such longer period as to which 
                        the Board consents.
            (10) Effective dates.--
                    (A) In general.--A proposed rule approved by the 
                Commission under this subsection shall take effect not 
                earlier than 30 days after the date of publication of 
                notice under paragraph (4), unless the Commission finds 
                good cause for an earlier effective date and publishes 
                its reasons for that finding.
                    (B) Expedited applicability.--
                            (i) Rule effective upon filing.--
                        Notwithstanding subparagraph (A), a proposed 
                        rule may take effect upon the date of receipt 
                        of a filing with the Commission under paragraph 
(3), if the Board designates the proposed rule as--
                                    (I) constituting a stated policy, 
                                practice, or interpretation with 
                                respect to the meaning, administration, 
                                or enforcement of an existing rule of 
                                the Board;
                                    (II) establishing or changing a fee 
                                or other charge imposed by the Board; 
                                or
                                    (III) concerned solely with the 
                                administration of the Board or other 
                                matters which the Commission, by rule, 
                                consistent with the public interest and 
                                the purposes of this Act, may exempt 
                                from the requirements of subparagraph 
                                (A).
                            (ii) Protection of investors.--
                        Notwithstanding any other provision of this 
                        subsection, a proposed rule may be put into 
                        effect immediately if the Commission 
                        determines, after consultation with the Board, 
                        or the Board determines, after consultation 
                        with the Commission, that such action is 
                        necessary for the protection of investors. A 
                        proposed rule subject to treatment under this 
                        subparagraph shall be filed with the Commission 
                        promptly in accordance with paragraph (3).
                            (iii) Rule enforcement.--Any proposed rule 
                        that has taken effect under this subparagraph 
                        shall be enforced by the Board to the extent 
                        that it is not inconsistent with this Act, the 
                        securities laws, the rules of the Commission, 
                        and other applicable Federal law.
            (11) Rule abrogation.--
                    (A) General authority.--Notwithstanding any other 
                provision of this section, or any other provision of 
                law, during the 60-day period following the date of 
                receipt of the filing of a proposed rule under 
                paragraph (3), the Commission may abrogate any proposed 
                rule and require that the proposed rule be refiled in 
                accordance with paragraph (3), if the Commission 
                determines that such action is necessary or appropriate 
                in the public interest, for the protection of 
                investors, or otherwise in furtherance of the purposes 
                of this Act or the securities laws.
                    (B) Procedure.--Commission action under this 
                subparagraph--
                            (i) shall not affect the validity or force 
                        of the subject rule during any period for which 
                        it was in effect;
                            (ii) shall not be reviewable under section 
                        25 of the Securities Exchange Act of 1934 (15 
                        U.S.C. 78a et seq.); and
                            (iii) shall not be a final agency action 
                        for purposes of section 704 of title 5, United 
                        States Code.
    (c) Power of the Commission To Amend Rules of the Board.--
            (1) In general.--The Commission, by rule or order, may 
        amend the rules of the Board (including the abrogation, 
        addition to, or deletion from such rules), as the Commission 
        determines necessary or appropriate to--
                    (A) assure the fair administration of the Board;
                    (B) conform the rules promulgated by the Board to 
                the requirements of this Act, and the securities laws; 
                and
                    (C) otherwise further the purposes of this Act or 
                the securities laws.
            (2) Notice.--The Commission shall notify the Board and 
        publish notice of a proposed rulemaking under this subsection 
        in the Federal Register, which notice shall include the text of 
        the proposed amendment to the rules of the Board and a 
        statement of the reasons of the Commission, including the 
        pertinent facts, for commencing such proposed rulemaking.
            (3) Hearing.--The Commission, at its discretion, may give 
        interested persons an opportunity for the oral presentation of 
        data, views, and arguments, in addition to an opportunity to 
        make written submissions, with respect to an action under this 
        subsection. A transcript shall be kept of any such oral 
        presentation.
            (4) Statement of basis and purpose.--A rule adopted under 
        this subsection shall incorporate the text of the amendment to 
        the rules of the Board and a statement by the Commission on its 
        basis for and purpose in so amending such rules, including an 
        identification of any facts on which the Commission considers 
        its determination to amend the rules of the Board to be based, 
        including the reasons for the conclusions of the Commission as 
        to any facts that were disputed in the rulemaking.
            (5) Clarifications.--
                    (A) Not on the record.--Except as provided in 
                paragraphs (1) through (4), rulemaking under this 
                subsection shall be in accordance with the procedures 
                specified in section 553 of title 5, United States 
                Code, for rulemaking not on the record.
                    (B) No impact on commission rulemaking authority.--
                Nothing in this subsection shall be construed to impair 
                or limit the authority of the Commission to make, 
                modify, or alter the procedures that the Commission may 
                follow in making rules and regulations under any other 
                authority under this Act or the securities laws.
                    (C) Effect of commission amendments to board 
                rules.--Any amendment to the rules of the Board made by 
                the Commission under this subsection shall be 
                considered for all purposes of this Act and the 
                securities laws to be part of the rules of the Board, 
                and shall not be considered to be a rule of the 
                Commission.
    (d) Commission Review of Disciplinary Action Taken by the Board.--
            (1) Notice of sanction.--If the Board imposes any final 
        disciplinary or remedial sanction on any registered independent 
        public accounting firm or on any associated person of a 
        registered independent public accounting firm, the Board shall 
        promptly file notice thereof with the Commission, in such form 
        and containing such information as the Commission, by rule, may 
        prescribe as necessary or appropriate in furtherance of the 
        purposes of this Act and the securities laws.
            (2) Review of sanction.--
                    (A) In general.--Any sanction described in 
                paragraph (1) shall be subject to review by the 
                Commission, on its own motion, or upon application by 
                any person aggrieved thereby.
                    (B) Application for review.--An application for 
                review of a sanction described in paragraph (1) shall 
                be filed not later than 30 days after the date on which 
                the aggrieved person was notified of the sanction by 
                the Board, or within such longer period as the 
                Commission may determine appropriate.
                    (C) Review does not suspend sanction.--An 
                application to the Commission for review of a sanction 
                described in paragraph (1), or the institution of 
                review by the Commission on its own motion, shall not 
                operate as a stay of the sanction, unless the 
                Commission otherwise orders, summarily or after notice 
                and opportunity for hearing on the question of a stay. 
                Such hearing may consist solely of the submission of 
                affidavits or presentation of oral arguments. The 
                Commission shall establish an expedited procedure, in 
                appropriate cases, for consideration and determination 
                of the question of a stay.
    (e) Disposition of Review; Notice and Hearing; Affirmation; 
Modification or Cancellation of Sanction.--
            (1) Notice and hearing.--In any proceeding to review a 
        final disciplinary or remedial sanction imposed by the Board on 
        a registered independent public accounting firm or an 
        associated person thereof, the firm or person shall be provided 
        with notice and an opportunity for hearing. The hearing may 
        consist solely of consideration of the record before the Board 
        and an opportunity to present supporting reasons to affirm, 
        modify, or set aside the sanction.
            (2) Affirmation.--The Commission shall, by order, affirm a 
        sanction imposed by the Board, if the Commission finds that--
                    (A) the sanctioned registered independent public 
                accounting firm or associated person has engaged in 
                such acts or practices, or has omitted to act, as the 
                Board has found that person to have engaged in or 
                omitted;
                    (B) such acts or practices, or omissions to act, 
                are in violation of any provision of this Act, the 
                securities laws, the rules of the Board, or 
                professional standards, as have been specified in the 
                determination of the Board; and
                    (C) such provisions, laws, rules, or standards were 
                applied with respect to the registered independent 
                public accounting firm or associated person in a manner 
                consistent with the purposes of this Act and the 
                securities laws.
            (3) Commission modification authority.--The Commission may 
        enhance, modify, cancel, reduce, or require the remission of a 
        sanction imposed by the Board upon a registered independent 
        public accounting firm or associated person thereof, if the 
        Commission, having due regard for the public interest and the 
        protection of investors, finds, after a proceeding in 
        accordance with this subsection, that the sanction--
                    (A) is not necessary or appropriate in furtherance 
                of the purposes of this Act or the securities laws; or
                    (B) is excessive or oppressive.
            (4) Cancellation.--If the Commission does not take any 
        action under paragraph (2) or (3), it shall, by order, set 
        aside the sanction imposed by the Board and, if appropriate, 
        remand to the Board for further proceedings.
    (f) Board Compliance and Enforcement.--
            (1) Compliance.--The Board shall comply with this Act, the 
        securities laws, the rules of the Commission, and the rules of 
        the Board.
            (2) Enforcement.--Absent reasonable justification or 
        excuse, the Board shall enforce compliance with this Act, the 
        rules of the Board or the Commission, and professional 
        standards by registered independent public accounting firms and 
        associated persons thereof.
    (g) Censure of the Board; Other Sanctions.--
            (1) Rescission of board authority.--The Commission, by 
        rule, consistent with the public interest, the protection of 
        investors, and the purposes of this Act and the securities 
        laws, may relieve the Board of any responsibility under this 
        Act to enforce compliance with any provision of this Act, the 
        securities laws, the rules of the Board or the Commission, or 
        professional standards by any registered independent public 
        accounting firm or associated person thereof, or any class of 
        such firms or persons associated with such firms.
            (2) Censure of the board; limitations.--The Commission may, 
        by order, as it determines necessary or appropriate in the 
        public interest, for the protection of investors, or otherwise 
        in furtherance of the purposes of this Act or the securities 
        laws, censure or impose limitations upon the activities, 
        functions, and operations of the Board, if the Commission 
        finds, on the record, after notice and opportunity for a 
        hearing, that the Board--
                    (A) has violated or is unable to comply with any 
                provision of this Act, the securities laws, or the 
                rules of the Board; or
                    (B) without reasonable justification or excuse, has 
                failed to enforce compliance with any such provision or 
                rule, or any professional standard by a registered 
                independent public accounting firm or an associated 
                person thereof.
            (3) Censure of board members; removal from office.--If the 
        Commission determines that an activity is necessary or 
        appropriate in the public interest, for the protection of 
        investors, or otherwise in furtherance of the purposes of this 
        Act or the securities laws, the Commission may remove from 
        office or censure any member of the Board, if the Commission 
        finds, on the record after notice and opportunity for a 
        hearing, that such member--
                    (A) has willfully violated any provision of this 
                Act, the securities laws, or the rules of the Board;
                    (B) has willfully abused the authority of that 
                member; or
                    (C) without reasonable justification or excuse, has 
                failed to enforce compliance with any such provision or 
                rule, or any professional standard by any registered 
                independent public accounting firm or any associated 
                person thereof.

                TITLE II--ACCOUNTING AND AUDIT STANDARDS

SEC. 201. AUDITOR INDEPENDENCE.

    (a) Prohibition on Services Outside the Auditor Scope of 
Practice.--
            (1) In general.--Section 10A of the Securities Exchange Act 
        of 1934 (15 U.S.C. 78j-1) is amended by adding at the end the 
        following:
    ``(g) Prohibited Activities.--It shall be unlawful for a registered 
independent public accounting firm that performs for any issuer any 
auditing service required by this title, or the rules of the Commission 
under this title (and any associated person of that accountant, to the 
extent determined appropriate by the Commission), or receives any 
general revenues from such issuer, to provide to that issuer, 
contemporaneously with the auditing service, any non-audit service, 
including--
            ``(1) bookkeeping or other services related to the 
        accounting records or financial statements of the issuer;
            ``(2) financial information systems design and 
        implementation consulting services (referred to as `information 
        technology' or `IT' consulting services);
            ``(3) appraisal or valuation services, fairness opinions, 
        or contribution-in-kind reports;
            ``(4) actuarial services;
            ``(5) internal audit out sourcing services;
            ``(6) any management or human resources function;
            ``(7) broker, dealer, investment adviser, or investment 
        banking services;
            ``(8) legal services;
            ``(9) expert services unrelated to the auditing service;
            ``(10) any other service that the Commission determines, by 
        regulation, is outside the scope of the duties of an auditor; 
        and
            ``(11) any non-audit service, including tax services, that 
        is not described in any of paragraphs (1) through (10), except 
        as approved in advance by the audit committee of the issuer, 
        based on a determination that the performance of such service 
        would be in the best interest of investors and would have no 
        adverse effect on the independence of the accounting firm.''.
            (2) Conforming amendments.--
                    (A) Definitions.--Section 3(a) of the Securities 
                Exchange Act of 1934 (15 U.S.C. 78c(a)) is amended by 
                adding at the end the following:
            ``(58) Audit committee.--The term `audit committee' means--
                    ``(A) a committee (or equivalent body) established 
                by the board of directors of an issuer for the purpose 
                of overseeing the accounting and financial reporting 
                processes of the issuer and audits of the financial 
                statements of the issuer; and
                    ``(B) if no such committee exists with respect to 
                an issuer, the entire board of directors of the issuer.
            ``(59) Registered independent public accounting firm.--The 
        term `registered independent public accounting firm' has the 
        same meaning as in section 3 of the Investor Confidence in 
        Public Accounting Act of 2002.''.
                    (B) Auditor requirements.--Section 10A of the 
                Securities Exchange Act of 1934 (15 U.S.C. 78j-1) is 
                amended--
                            (i) by striking ``an independent public 
                        accountant'' each place that term appears and 
                        inserting ``a registered independent public 
                        accounting firm'';
                            (ii) by striking ``the independent public 
                        accountant'' each place that term appears and 
                        inserting ``the registered independent public 
                        accounting firm'';
                            (iii) in subsection (c), by striking ``No 
                        independent public accountant'' and inserting 
                        ``No registered independent public accounting 
                        firm''; and
                            (iv) in subsection (b)--
                                    (I) by striking ``the accountant'' 
                                each place that term appears and 
                                inserting ``the firm'';
                                    (II) by striking ``such 
                                accountant'' each place that term 
                                appears and inserting ``such firm''; 
                                and
                                    (III) in paragraph (4), by striking 
                                ``the accountant's report'' and 
                                inserting ``the report of the firm''.
                    (C) Other references.--The Securities Exchange Act 
                of 1934 (15 U.S.C. 78a et seq.) is amended--
                                    (i) in section 12(b)(1) (15 U.S.C. 
                                78l(b)(1)), by striking ``independent 
                                public accountants'' each place that 
                                term appears and inserting ``a 
                                registered independent public 
                                accounting firm''; and
                                    (ii) in subsections (e) and (i) of 
                                section 17 (15 U.S.C. 78q), by striking 
                                ``an independent public accountant'' 
                                each place that term appears and 
                                inserting ``a registered independent 
                                public accounting firm''.
            (3) Commission regulations.--
                    (A) In general.--Not later than 180 days after the 
                date of enactment of this Act, the Commission shall 
                issue final regulations to carry out section 10A(g) of 
                the Securities Exchange Act of 1934, as added by this 
                section.
                    (B) Contents of regulations.--The regulations 
                issued under subparagraph (A), shall be substantially 
                similar to the scope of practice provisions of the 
                proposed rules issued by the Commission on July 13, 
                2000, consistent with the provisions of this Act, 
                regarding revision of the auditor independence 
                requirements contained in Parts 210 and 240 of title 
                17, of the Code of Federal Regulations (RIN 3235-AH91).
    (b) Auditor Conflicts of Interest.--Section 10A of the Securities 
Exchange Act of 1934 (15 U.S.C. 78j-1), as amended by this Act, is 
amended by adding at the end the following:
    ``(h) Conflicts of Interest.--It shall be unlawful for a registered 
independent public accounting firm to perform for any issuer any 
auditing service required by this  title, if the comptroller, principal 
accounting officer, or principal financial officer of the issuer, or 
any other individual serving in a management capacity for the issuer at 
any time during the period of such service, was employed by that 
registered independent public accounting firm during the 2-year period 
preceding the initiation of the auditing services.''.
    (c) Auditor Independence.--It shall be unlawful for any registered 
independent public accounting firm (or an associated person thereof, as 
applicable) to prepare or issue any audit report with respect to any 
issuer, if the firm or associated person--
            (1) engages in any activity with respect to that issuer 
        prohibited by section 10A(g) of the Securities Exchange Act of 
        1934, as added by this section, or any rule or regulation of 
        the Commission issued thereunder; or
            (2) violates section 10A(h) of the Securities Exchange Act 
        of 1934, as added by this section, or any rule or regulation of 
        the Commission issued thereunder with respect to that issuer.

SEC. 202. REGISTRATION OF PUBLIC ACCOUNTING FIRMS.

    (a) Mandatory Registration With the Board.--Beginning 1 year after 
the date of the designation of the Board under section 101, it shall be 
unlawful for any person to prepare or issue any audit report with 
respect to any issuer, unless that person--
            (1) is a registered independent public accounting firm;
            (2) is in compliance with this Act and all applicable rules 
        of the Board and the Commission; and
            (3) has paid all applicable registration and annual fees 
        under this title.
    (b) Application for Registration.--A public accounting firm may 
become registered under this title upon application to the Board, in 
such form and containing such information as the Board, by rule, may 
prescribe.
    (c) Contents of Applications.--Each application by a public 
accounting firm for registration under this title shall include--
            (1) the names of all of the issuers for which the firm 
        prepares or issues audit reports; and
            (2) for each such issuer, the annual fees received by the 
        firm from that issuer relating to--
                    (A) performance of any annual audit or quarterly 
                interim review of the financial statements of the 
                issuer to be filed in an audit report with the 
                Commission under the securities laws;
                    (B) other accounting and auditing services;
                    (C) tax services;
                    (D) information technology consulting services; and
                    (E) all other consulting or advisory services, in 
                such detail as the rules of the Board shall specify;
            (3) financial information of the firm for the most recent 
        fiscal year, including the total annual revenues, assets, 
        liabilities, and net equity of the firm, and the aggregate 
        revenues from each of the accounting, auditing, tax, and other 
        professional services provided to any issuer;
            (4) the names of any liability insurance carrier of the 
        firm;
            (5) a copy of the policies and procedures of the firm with 
        respect to quality control of its accounting and auditing 
        practices;
            (6) a list of all persons associated with the firm, the 
        license or certification number of each such person issued by 
        the appropriate State regulatory authority, and a brief 
        statement of the education and experience of each such person;
            (7) information relating to criminal, civil, or 
        administrative actions or disciplinary proceedings pending 
        against the firm or any associated person of the firm in 
        connection with any audit report prepared or issued by the 
        firm;
            (8) a list of issuers for which the firm has been appointed 
        as a successor auditor in the most recently completed fiscal 
        year, and where unresolved disagreements exist between the 
        successor and predecessor auditor on the application of 
        generally accepted accounting principles, including a detailed 
        description of the nature of any such disagreement; and
            (9) such other information as the rules of the Board or the 
        Commission shall specify as necessary or appropriate in the 
        public interest or for the protection of investors.
    (d) Registration and Annual Fees.--
            (1) In general.--The Board shall assess and collect a 
        registration fee and annual dues from each registered 
        independent public accounting firm, subject to annual review 
        and approval by the Commission.
            (2) Amounts.--
                    (A) In general.--Fees and dues under paragraph (1) 
                shall be assessed at a level sufficient to recover the 
                costs and expenses of the Board and to permit the Board 
                to operate on a self-funding basis.
                    (B) Basis of fees.--The amount of fees and dues for 
                each registered independent public accounting firm 
                shall be based upon--
                            (i) the annual revenues of that firm from 
                        accounting, auditing, and other professional 
                        services provided to issuers for the purpose of 
                        preparing or issuing any audit report;
                            (ii) the number of persons associated with 
                        the firm that prepare or issue, or assist or 
                        otherwise participate in the preparation or 
                        issuance of audit reports;
                            (iii) the number of issuers for which the 
                        firm prepares or issues any audit report; and
                            (iv) such other criteria as the rules of 
                        the Board may establish.
    (e) Special Fees.--The Board may prescribe and collect fees that 
fairly reflect the costs to the Board of conducting inspections and 
disciplinary actions in accordance with this Act, in addition to other 
fees authorized by this section.
    (f) Periodic Reports.--
            (1) Annual reports.--Each registered independent public 
        accounting firm shall submit an annual report to the Board to 
        update the information contained in its application for 
        registration under this section, and to provide to the Board 
        any additional information that the Board may require, in 
        accordance with the rules of the Board.
            (2) Updates.--Not later than 15 days after an event that 
        affects any information referred to in paragraph (7) or (8) of 
        subsection (c), or more frequently as the Board may require, 
        each registered independent public accounting firm shall 
        provide to the Board any relevant information with respect to 
        such matters.
            (3) Public availability.--Annual reports required by this 
        subsection, or parts thereof, as designated by the rules of the 
        Board or the Commission, shall be made available for public 
        inspection, subject to applicable laws relating to the 
        confidentiality of information contained in such reports.
    (g) Commission Exemption Authority.--The Commission, by rule or 
order, upon its own motion or upon application, may conditionally or 
unconditionally exempt any public accounting firm or any audit report, 
or any class of public accounting firms or any class of audit reports, 
from any provision of this Act, if the Commission finds that such 
exemption is consistent with the public interest, the protection of 
investors, and the purposes of this Act.

SEC. 203. INVESTIGATIONS AND DISCIPLINARY PROCEEDINGS.

    (a) Investigations and Disciplinary Proceedings.--The rules of the 
Board shall establish fair procedures for investigating and 
disciplining registered independent public accounting firms and 
associated persons thereof for violations of this Act, the securities 
laws, the rules of the Board or the Commission, or professional 
standards.
    (b) Investigation Procedures.--
            (1) Authority.--In accordance with the rules of the Board, 
        the Board may conduct an investigation of any act or practice, 
        or omission to act, by a registered independent public 
        accounting firm, or by any associated person of a registered 
        independent public accounting firm, that may violate any 
        provision of this Act, the securities laws, the rules of the 
        Board or the Commission, or professional standards, regardless 
        of how the act, practice, or omission is brought to the 
        attention of the Board. At the discretion of the Board, such an 
        investigation, in light of the circumstances, may relate to the 
        entire registered independent public accounting firm, to 1 or 
        more persons associated with the firm, or to 1 or more offices, 
        engagements, or transactions of the firm.
            (2) Compulsion of testimony and document production.--For 
        purposes of an investigation under this section, and in 
        addition to such other actions as the Board determines to be 
        necessary or appropriate, the rules of the Board may--
                    (A) require the testimony of any person associated 
                with a registered independent public accounting firm, 
                with respect to any matter that the Board considers 
                relevant or material to the investigation;
                    (B) require the production of audit work papers and 
                of any other document or information in the possession 
                of a registered independent public accounting firm or 
                any associated person thereof, wherever domiciled, that 
                the Board considers relevant or material to the 
                investigation, and may inspect the books and records of 
                such firm or associated person to verify the accuracy 
                of any documents or information supplied; and
                    (C) require the testimony of, and production of any 
                document in the possession of, any person, including 
                any issuer client of a registered independent public 
                accounting firm, that the Board considers relevant or 
                material to an investigation under this section.
            (3) Penalties for noncompliance with investigation.--
                    (A) In general.--Any person who fails to comply 
                with the requirements of this section shall be subject 
                to the same sanctions as are applicable for any failure 
                to produce information or testimony to the Commission 
                in the course of a formal investigation.
                    (B) Refusal to cooperate.--If a registered 
                independent public accounting firm or any associated 
                person thereof refuses to testify, produce documents, 
                or otherwise cooperate with the Board in connection 
                with an investigation under this section, the Board 
                may--
                            (i) suspend or bar such person from being 
                        associated with an issuer or a registered 
                        independent public accounting firm;
                            (ii) suspend or revoke the registration of 
                        the public accounting firm; and
                            (iii) invoke such other sanctions as the 
                        Board considers appropriate.
            (4) Referral.--The Board may refer any investigation to the 
        Commission, the Attorney General of the United States, and the 
        appropriate State regulatory authority, as it determines 
        appropriate, and each such entity shall evaluate any such 
        referral and take such action with respect to the matter 
        referred as it determines necessary or appropriate.
            (5) Use of documents.--
                    (A) Confidentiality.--Except as provided in 
                subparagraph (B), all reports, memoranda, and other 
                information prepared or received by, and deliberations 
                of the Board and its employees and agents in connection 
                with an investigation under this section, shall be 
                confidential and privileged, unless and until presented 
                in connection with a public proceeding or the public 
                release by the Board of its report of sanctions under 
                subsection (d).
                    (B) Availability to government agencies.--All 
                information referred to in subparagraph (A) shall be--
                            (i) made available to the Commission, the 
                        Attorney General of the United States, to any 
                        other Federal department or agency, to any 
                        appropriate State regulatory authority, and to 
                        Federal and State authorities in connection 
                        with any criminal investigation or proceeding; 
                        and
                            (ii) admissible in any action brought by 
                        the Commission, the Attorney General of the 
                        United States, or any other Federal department 
                        or agency, or by any appropriate State 
                        regulatory authority, and in any criminal 
                        action.
            (6) Government immunity.--Any employee of the Board engaged 
        in carrying out an investigation under this Act shall be immune 
        from any civil liability arising out of such investigation in 
        the same manner and to the same extent as an employee of the 
        Federal Government in similar circumstances.
    (c) Disciplinary Procedures.--
            (1) Notification; recordkeeping.--The rules of the Board 
        shall provide that in any proceeding by the Board to determine 
        whether a registered independent public accounting firm or an 
        associated person thereof, should be disciplined, the Board 
        shall--
                    (A) bring specific charges with respect to the firm 
                or associated person;
                    (B) notify such firm or associated person of, and 
                provide to the firm or associated person an opportunity 
                to defend against, such charges; and
                    (C) keep a record of the proceedings.
            (2) Public hearings.--All hearings under this section shall 
        be public, unless otherwise ordered by the Board on its own 
        motion or after considering the motion of a party.
            (3) Sanctions.--If the Board finds that a registered 
        independent public accounting firm, or a person associated with 
        a registered independent public accounting firm, has engaged in 
        any act or practice, or omitted to act, in violation of this 
        Act, the securities laws, the rules of the Board or the 
        Commission, or professional standards, the Board may impose 
        such disciplinary or remedial sanctions as it determines 
        appropriate, including--
                    (A) temporary or permanent revocation or suspension 
                of registration under this title with the Board;
                    (B) temporary or permanent limitation of 
                activities, functions, or operations;
                    (C) civil money penalties;
                    (D) censure;
                    (E) in the case of an associated person of a 
                registered independent public accounting firm, 
                temporary or permanent suspension or bar from being 
                associated with any registered independent public 
                accounting firm; or
                    (F) any other appropriate sanction, subject to the 
                approval of the Commission.
            (4) Civil money penalties.--
                    (A) Board determination.--Subject to the approval 
                of the Commission, civil money penalties for a 
                violation of this Act, the securities laws, the rules 
                of the Board or the Commission, or professional 
                standards, if any, shall be determined by the Board, 
                based on the facts and circumstances.
                    (B) Penalty limits.--For each violation of this 
                Act, the securities laws, the rules of the Board or the 
                Commission, or professional standards, the amount of a 
                penalty imposed under subparagraph (A) may not exceed 
                the greater of--
                            (i) $100,000 for a natural person; or
                            (ii) $2,000,000 for any person other than a 
                        natural person.
                    (C) Fraud.--Notwithstanding subparagraph (B), the 
                amount of a penalty for each violation described in 
                subparagraph (B) that involves fraud, deceit, 
                manipulation, or deliberate or reckless disregard of 
                the regulatory standard, may not exceed the greater 
                of--
                            (i) $750,000 for a natural person; or
                            (ii) $15,000,000 for any person other than 
                        a natural person.
                    (D) Use of amounts.--Civil money penalties assessed 
                under this paragraph shall be deposited in the General 
                Fund of the United States Treasury.
            (5) Supporting statement.--A determination by the Board to 
        impose a disciplinary or remedial sanction or penalty under 
        this section shall be supported by a statement setting forth--
                    (A) any prohibited act or practice in which the 
                registered independent public accounting firm, or 
                associated person of such firm, has engaged, or any 
                required act or practice which such firm or person has 
                omitted;
                    (B) the specific provision of this Act, the 
                securities laws, the rules of the Board or the 
                Commission, or professional standards which the Board 
                determines has been violated; and
                    (C) the sanction imposed, including a justification 
                for that sanction.
            (6) Effect of suspension--
                    (A) Association with a public accounting firm.--
                            (i) Suspended or barred persons.--It shall 
                        be unlawful for any person that is suspended or 
                        barred from being associated with a registered 
                        independent public accounting firm in 
                        accordance with this section willfully to 
                        become or remain associated with a registered 
                        independent public accounting firm without the 
                        consent of the Board or the Commission.
                            (ii) registered independent public 
                        accounting firms.--It shall be unlawful for any 
                        registered independent public accounting firm 
                        to permit a person that is suspended or barred 
                        from being associated with any such firm in 
                        accordance with this section to become or 
                        remain associated with that firm without the 
                        consent of the Board or the Commission, if the 
                        firm knew, or, in the exercise of reasonable 
                        care should have known, of the suspension or 
                        bar.
                    (B) Association with an issuer.--
                            (i) Suspended or barred persons.--It shall 
                        be unlawful for any person that is suspended or 
                        barred from being associated with an issuer in 
                        accordance with this section willfully to 
                        become or remain associated with such an issuer 
                        without the consent of the Board or the 
                        Commission.
                            (ii) Issuers.--It shall be unlawful for any 
                        issuer to permit any person that is suspended 
                        or barred from being associated with an issuer 
                        in accordance with this section to become or 
                        remain an associated person of that issuer 
                        without the consent of the Board or the 
                        Commission, if the issuer knew, or, in the 
                        exercise of reasonable care should have known, 
                        of the suspension or bar.
    (d) Reporting of Sanctions.--
            (1) Recipients.--Whenever the Board imposes a disciplinary 
        sanction or penalty against a registered independent public 
        accounting firm, an associated person of a registered 
        independent public accounting firm, or any other person, in 
        accordance with this section, the Board shall report the 
        sanction to--
                    (A) the Commission;
                    (B) any appropriate State regulatory authority with 
                which such firm or person is licensed or certified to 
                practice public accounting;
                    (C) the Attorney General of the United States; and
                    (D) the public.
            (2) Contents.--The information required to be reported 
        under paragraph (1) shall include--
                    (A) the name of the registered independent public 
                accounting firm or other person against whom the 
                sanction or penalty is imposed;
                    (B) a description of the acts or practices, or 
                omissions to act, upon which the sanction or penalty is 
                based;
                    (C) the nature of the sanction; and
                    (D) such other information respecting the 
                circumstances of the disciplinary sanction or penalty 
                as the Board determines appropriate.

SEC. 204. ACCOUNTING STANDARDS.

    (a) Recognition of Generally Accepted Accounting Principles.--For 
purposes of this Act and the securities laws, the Commission shall 
recognize generally accepted accounting principles established by a 
United States standard setting body that the Commission determines is 
so organized and has such capacity to be capable of meeting the 
purposes and requirements of this section.
    (b) Qualifications.--A standard setting body described in 
subsection (a) shall--
            (1) be a private entity;
            (2) have, for administrative and operational purposes, a 
        board of trustees (or equivalent body), the majority of whom 
        are not, concurrent with such service, and have not been during 
        the 2 years prior to such service, associated with any 
        registered independent public accounting firm;
            (3) propose and adopt rules establishing and improving 
        standards of financial accounting and reporting for purposes of 
        compliance with the securities laws, which rules shall, at a 
        minimum, be designed--
                    (A) to improve the usefulness of financial 
                reporting for such purposes by focusing on the primary 
                characteristics of relevance and reliability and on the 
                qualities of comparability and consistency;
                    (B) to keep standards current to reflect changes in 
                methods of doing business and changes in the economic 
                environment;
                    (C) to ensure the prompt consideration of any 
                significant areas of deficiency in financial reporting 
                that might be improved through the standard setting 
                process;
                    (D) to promote convergence on high quality 
                accounting standards and improvements in financial 
                reporting; and
                    (E) to improve the common understanding of the 
                nature and purpose of information contained in 
                financial reports; and
            (4) be funded solely--
                    (A) by fees and charges assessed against each 
                issuer, as may be necessary or appropriate to defray 
                the costs and expenses of operations in carrying out 
                this section, subject to review by the Commission in 
                accordance with this section, which fees may 
                differentiate between different classes of issuers, as 
                necessary or appropriate; and
                    (B) by revenues collected from the sale of 
                materials and publications produced by that body.
    (c) Annual Report.--
            (1) In general.--A standard setting body recognized under 
        subsection (a) shall submit an annual report to the Board, the 
        Commission, and the Congress.
            (2) Contents.--Each report required by paragraph (1) shall 
        contain audited financial statements of the standard setting 
        body recognized under subsection (a) and a detailed explanation 
        of the fees and charges assessed under subsection (b).
    (d) Commission Authority.--The Commission shall promulgate such 
rules and regulations to carry out this section as it deems necessary 
or appropriate in the public interest or for the protection of 
investors.
    (e) No Effect on Commission Powers.--Nothing in this section shall 
be construed to impair or limit the authority of the Commission to 
regulate the accounting profession, accounting firms, or persons 
associated with  such firms, or otherwise to establish accounting 
principles or standards, for purposes of enforcement of the securities 
laws.
    (f) Conforming Amendments to Securities Acts.--
            (1) Securities exchange act of 1934.--Section 3(a) of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78c(a)), as amended 
        by this Act, is amended by adding at the end the following:
            ``(60) Generally accepted accounting principles.--The term 
        `generally accepted accounting principles' means any accounting 
        standards and principles--
                    ``(A) recognized by the Commission as being 
                established by a standard setting body in accordance 
                with section 204 of the Investor Confidence in Public 
                Accounting Act of 2002; and
                    ``(B) established by rule, regulation, or order of 
                the Commission.''.
            (2) Securities act of 1933.--Section 2(a) of the Securities 
        Act of 1933 (15 U.S.C. 77b(a)) is amended by adding at the end 
        the following:
            ``(17) Generally accepted accounting principles.--The term 
        `generally accepted accounting principles' means any accounting 
        standards and principles--
                    ``(A) recognized by the Commission as being 
                established by a standard setting body in accordance 
                with section 204 of the Investor Confidence in Public 
                Accounting Act of 2002; and
                    ``(B) established by rule, regulation, or order of 
                the Commission.''.

SEC. 205. MISREPRESENTATIONS TO AUDITORS.

    (a) In General.--It shall be unlawful, in contravention of such 
rules and regulations as the Commission shall prescribe as necessary or 
appropriate in the public interest or for the protection of investors, 
for any officer, director, or affiliated person of an issuer of any 
security registered under section 12 of the Securities Exchange Act of 
1934 (15 U.S.C. 78l) to take any action to willfully and improperly 
influence, coerce, manipulate, or mislead any registered independent 
public accounting firm engaged in the preparation or issuance of an 
audit report for the purpose of rendering any such audit report 
materially misleading.
    (b) Enforcement Authority.--In any civil proceeding, the Commission 
shall have exclusive authority to enforce this section and any rule or 
regulation hereunder.

SEC. 206. COMMISSION RULES AND ENFORCEMENT.

    (a) Regulatory Action.--The Commission shall promulgate such rules 
and regulations, as may be necessary or appropriate in the public 
interest or for the protection of investors, consistent with this Act.
    (b) Enforcement.--A violation by any person of this title, any rule 
or regulation of the Commission issued under this title, or any rule of 
the Board shall be treated for all purposes in the same manner as a 
violation of the Securities Exchange Act of 1934 or the rules and 
regulations issued thereunder, consistent with the provisions of this 
Act, and any such person shall be subject to the same penalties, and to 
the same extent as for a violation of that Act or such rules or 
regulations.
    (c) Effect on Commission Authority.--Nothing in this Act or the 
rules of the Board shall be construed to impair or limit--
            (1) the authority of the Commission to regulate the 
        accounting profession, accounting firms, or persons associated 
        with such firms for purposes of enforcement of the securities 
        laws;
            (2) the authority of the Commission to set standards for 
        accounting or auditing practices or auditor independence, 
        derived from other provisions of the securities laws or the 
        rules or regulations thereunder, for purposes of the 
        preparation and issuance of any auditor report, or otherwise 
        under applicable law; or
            (3) the ability of the Commission to take, on the 
        initiative of the Commission, legal, administrative, or 
        disciplinary action against any registered independent public 
        accounting firm or any associated person thereof.

SEC. 207. ENHANCED COMMISSION OVERSIGHT.

    (a) Increase in Professionals.--
            (1) Staff increases.--Not later than 180 days after the 
        date of enactment of this Act, the Commission shall employ not 
        fewer than an additional 150 qualified accounting professionals 
        to provide enhanced oversight of auditors and auditing services 
        required by the Federal securities laws, and to improve 
        Commission investigative and disciplinary efforts with respect 
        to such auditors and services.
            (2) Status.--Accounting professionals described in 
        paragraph (1) shall be appointed and compensated in the manner 
        authorized for the appointment and compensation of officers and 
        employees of the Commission under section 4(b) of the 
        Securities Exchange Act of 1934.
    (b) Authorization of Appropriations.--There are authorized to be 
appropriated to the Commission such amounts as may be necessary to 
carry out this section, which amounts shall be in addition to amounts 
otherwise appropriated to the Commission for any purpose, and which 
shall remain available until expended.

                  TITLE III--OTHER INVESTOR SAFEGUARDS

SEC. 301. IMPROVED FINANCIAL DISCLOSURES.

    (a) Improved Transparency of Financial Disclosures.--
            (1) Modification of regulations required.--Notwithstanding 
        any rule, regulation, or order of the Commission that provides 
        otherwise, the Commission shall issue regulations to require 
        periodic financial reports and registration statements of 
        issuers required under the securities laws to include adequate 
        and appropriate disclosure of--
                    (A) each transaction and relationship of the issuer 
                with any unconsolidated entity or other person, that 
                the Commission determines is reasonably likely to--
                            (i) materially affect liquidity or the 
                        availability of, or requirements for, capital 
                        resources, or otherwise expose the issuer to 
                        material current or future possible liability,  
obligations, expenses, or cash flow changes; or
                            (ii) affect the recognition of revenue, 
                        carrying value, or potential impairment of 
                        assets, credit ratings, earnings, cash flows, 
                        or stock price; and
                    (B) each relationship and material transaction with 
                any associated person of the issuer or other persons or 
                entities that may involve terms that differ materially 
                from any such relationship or transaction that would 
                likely be negotiated with a third party, including--
                            (i) a description of the elements of the 
                        relationship or transaction that are necessary 
                        for an understanding of its business purpose 
                        and economic substance;
                            (ii) the effects of the relationship or 
                        transaction on the financial statements of the 
                        issuer; and
                            (iii) the special risks or contingencies 
                        arising from the relationship transaction.
    (b) Electronic Disclosures of Affiliate Transactions.--Section 16 
of the Securities Exchange Act of 1934 (15 U.S.C. 78p) is amended by 
adding at the end the following:
    ``(h) Enhanced Disclosure.--
            ``(1) In general.--Except as otherwise specifically 
        provided in this title or the securities laws, and 
        notwithstanding any other provision of law, any disclosure of 
        the sale of any security required to be made by any person 
        described in subsection (a) shall be made available in 
        electronic form--
                    ``(A) to the Commission, before the end of the 
                calendar day following the calendar day on which the 
                transaction occurs;
                    ``(B) to the public by the Commission, to the 
                extent permitted under applicable law, upon receipt, 
                but in no case later than the end of the business day 
                on which the disclosure is received under subparagraph 
                (A); and
                    ``(C) in any case in which the issuer maintains a 
                corporate website that is accessible only internally, 
                on that internal website, before the end of the 
                calendar day on which the transaction occurs.
            ``(2) Other formats.--The requirement of disclosures in 
        electronic form under paragraph (1) shall, at the discretion of 
        the Commission, be in lieu of any other format required for 
        such disclosures on the day before the date of enactment of 
        this subsection.''.

SEC. 302. COMMISSION RECOMMENDATIONS ON TREATMENT OF STOCK OPTIONS.

    (a) Commission Recommendations.--The Commission shall submit to the 
accounting standard setting body described in section 204(a), its 
recommendations regarding the treatment under such accounting standards 
of--
            (1) options granted under an employee stock purchase plan, 
        as defined in section 423(b) of the Internal Revenue Code of 
        1996;
            (2) incentive stock options, as defined under section 
        422(b) of the Internal Revenue Code of 1986; and
            (3) any other type of stock option regularly offered by 
        issuers.
    (b) Timing.--The Commission shall submit its recommendations in 
accordance with subsection (a) not later than 60 days after the date on 
which the Commission first recognizes a standard setting body under 
section 204.
    (c) Effective Date.--The amendments made by this section shall 
apply to property transferred and wages provided on or after the date 
of enactment of this Act.

SEC. 303. COMMISSION RECOMMENDATIONS ON TREATMENT OF SPECIAL PURPOSE 
              ENTITIES.

    (a) Commission Recommendations.--The Commission shall submit to the 
accounting standard setting body described in section 204(a), its 
recommendations regarding the appropriateness of the consolidation and 
disclosure of special purpose entities and similar types of affiliates 
or related parties under such accounting standards.
    (b) Timing.--The Commission shall submit its recommendations in 
accordance with subsection (a) not later than 60 days after the date on 
which the Commission first recognizes a standard setting body under 
section 204.

SEC. 304. REVIEW OF CORPORATE GOVERNANCE PRACTICES.

    (a) Study and Report on Corporate Governance Practices.--
            (1) Study.--Each self-regulatory organization shall conduct 
        a study and review of current corporate governance standards 
        and practices to determine whether such standards and practices 
        are serving the best interests of shareholders.
            (2) Analysis required.--The study and review required by 
        paragraph (1) shall include an analysis of--
                    (A) whether current standards and practices promote 
                full disclosure of relevant information to 
                shareholders;
                    (B) whether corporate codes of ethics are adequate 
                to protect shareholders, and to what extent deviations 
                from such codes are tolerated;
                    (C) to what extent conflicts of interests are 
                aggressively reviewed, and whether adequate means for 
                redressing such conflicts exist;
                    (D) to what extent sufficient legal protections 
                exist to ensure that any manager who attempts to 
                manipulate or unduly influence an audit is subject to 
                appropriate sanction and liability;
                    (E) whether rules, standards, and practices 
                relating to determining whether independent directors 
                are in fact independent are adequate;
                    (F) whether rules, standards, and practices 
                relating to the independence of directors serving on 
                audit committees are uniformly applied and adequate to 
                protect investor interests;
                    (G) whether the duties and responsibilities of 
                audit committees should be established by the 
                Commission; and
                    (H) what further or additional rules, standards, or 
                practices might best protect investors and promote the 
                interests of shareholders.
            (3) Report.--Each self-regulatory organization shall submit 
        a report of its findings under paragraph (1) to the Commission 
        and to the Congress, not later than 90 days after the date of 
        enactment of this Act.

SEC. 305. STUDY OF MANDATORY ROTATION OF REGISTERED INDEPENDENT PUBLIC 
              ACCOUNTING FIRMS.

    (a) Study and Review Required.--The Commission shall conduct a 
study and review of the potential effects of requiring the mandatory 
rotation of registered independent public accounting firms.
    (b) Factors To Be Considered.--In conducting the study under 
subsection (a), the Commission shall consider--
            (1) the degree, if any, to which mandatory rotation of 
        registered independent public accounting firms would lessen the 
        economic dependence of those firms on their larger audit 
        clients;
            (2) the competitive impact, if any, on registered 
        independent public accounting firms that would result from 
        mandatory rotation;
            (3) whether the goals of mandatory rotation of registered 
        independent public accounting firms would be better 
        accomplished through the rotation of individual accountants 
        within such firms on a particular audit; and
            (4) the appropriate length of a mandatory rotation period, 
        if the Commission determines that mandatory rotation of 
        registered independent public accounting firms is advisable.
    (c) Report Required.--Not later than 270 days after the date of 
enactment of this Act, the Commission shall submit a report to the 
Committee on Banking, Housing, and Urban Affairs of the Senate and the 
Committee on Financial Services of the House of Representatives on the 
results of the study and review required by this section.
    (d) Definition.--For purposes of this section, ``mandatory 
rotation'' refers to the imposition of a limit on the period of years 
in which a particular registered independent public accounting firm may 
be the auditor of record for a particular issuer.
                                 <all>